At the outset of the 2020s, the UK economy embarks on a new decade with little momentum. Growth has stalled, not least because Brexit uncertainty and a slowdown in the global economy has served as a handbrake on business investment. Meanwhile, consumers have begun tightening their belts and the job market boom of the past decade has petered out.
For at least the duration of 2020 another groundhog year awaits thanks to the ongoing Brexit saga, despite the promise Boris Johnson made before the election.
But as the economist Mat Lawrence has argued, Brexit is just the firing gun on a wider decade of disruption. The prime minister will not be able to declare the job done and his mission accomplished after the UK’s formal exit later this month. Instead it will mark the first steps towards redefining the nation’s place in a rapidly-changing world.
In a prescient report for the Institute for Public Policy Research three years ago, Lawrence outlined five powerful trends that will drive change in the 2020s: The aftershock of Brexit, a demographic tipping point from an ageing society, the rise of new technologies, a shifting global economic order and the existential threat of global heating.
These trends aside, much about the coming decade will be tough to predict from today’s vantage point. Johnson says his 10-year plan for Britain will usher in a “new golden age”. Yet, some on the left think Labour could remove him from office in half the time. Donald Trump could be deposed this year. Rising tension in the Middle East could spark a fresh Gulf war, sending oil prices soaring..
One hope in the wake of the election is that the decade ahead will not lead to another 10 years of crippling austerity. The British state is set to grow, with spending as a share of national income due to rise under Johnson’s Tories to 1970s levels according to the Resolution Foundation. This shift is vital to begin the lengthy job of fixing the battered public realm.
But the 2020s will still be largely defined by the cost-cutting of the past given the extent of the harm it caused. Britain has three primary economic problems to address from the outset, all arguably made far worse by the spending constraint of the 2010s.
First will be to reboot the flatlining productivity growth of the 2010s. Second is the task of rebalancing a fractured nation, by addressing inequalities of wealth, gender, race, education, geography and opportunity. Third will be to decarbonise the UK’s economic model, to prevent the climate emergency from turning into catastrophe.
Johnson will need to address each point while also taking on the complex task of redrawing Britain’s trading relationships with the EU, as well as striking new trade deals with other countries. All this comes as the economic world order of the past century faces substantial change that will shape the coming decade for Britain.
Asia’s GDP is expected to overtake that of the rest of the world this year, while China could replace the US as the planet’s largest economy by the end of the decade. Asia at large is expected to contribute to roughly 60% of global economic growth by 2030, and should be home to almost all the world’s 2.4 billion new members of the middle class. Britain will fall down the international league table, according to the City bank Standard Chartered, out of the top 10 to rank behind nations such as India and Indonesia by 2030.
The emergence of Asia as an economic powerhouse has so far been against a backdrop of ever increasing globalisation. But the 2010s probably marked the high point for the economic integration of recent decades. Trade policy uncertainty reached unprecedented levels in 2019. Phase one of a resolution in the US-China trade dispute that provided much of that uncertainty is expected next week, but economists expect the world to increasingly fragment over the next decade.
At the same time as our economies look set to slip further apart, global heating and a new mass extinction mean greater political cooperation will be required to tackle the climate emergency.
Amid these competing forces, there are warnings from the World Bank that doing nothing could mean climate impacts pushing an additional 100 million people into poverty by 2030. The poorest regions of the world – Sub-Saharan Africa and south Asia – are expected to be hit the hardest, prompting a migration crisis as people flee increasingly extreme weather events.
To respond to the threat, the decade ahead will be pivotal. World leaders have targeted the 2020s as a “decade of delivery” to reach the UN’s sustainable development goals – 17 targets to eliminate extreme poverty, cut inequalities and combat the climate emergency – adopted by the UN general assembly to hit by 2030. Progress is being made, but much more needs to be done.
A major risk will be that countries get distracted from the task by another global recession. Given rising geopolitical tensions, and the simple fact that national recessions tend to take place roughly ever ten years, the chances are rising. For the US, the current expansion is the longest on record, while in the UK the 2010s marked the first decade since reliable records began – in the 1700s – in which recession was completely avoided.
Either way economists expect growth over the 2020s in wealthy nations to be much slower than average in the decades before the 2008 financial crisis amid an ongoing demographic shift. Working-age populations are expected to shrink, including in the UK, where the number of over 85-year-olds is projected to almost double in the next 25 years – raising questions for growth and the funding of public services.
There are hopes that technological advances could address both the demographic shift and the climate emergency. But like a common thread running through these issues facing Britain in the 2020s, greater government coordination and funding will be required to realise the ambition.
Central banks head into the 2020s with interest rates close to, at, or below zero, meaning that the effectiveness of tweaking interest rates to stimulate demand is effectively neutered. Andrew Bailey will have an important role to play to continue the work of Mark Carney at the Bank of England, becoming governor for eight years of the 2020s starting in March, but low inflation and lack of room for manoeuvre mean the government must take the primary role.
Voters are increasingly fed up with kick-the-can policymaking. At the outset of the 2020s, Britain and the world are entering a disruption decade.
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